STATE OF FLORIDA

DIVISION OF ADMINISTRATIVE HEARINGS

DEPARTMENT OF INSURANCE AND ) TREASURER, )

)

Petitioner, )

)

vs. ) CASE NO. 92-2915

) PAUL LINTON MCCLINCHEY, JR., )

)

Respondent. )

)

RECOMMENDED ORDER

Pursuant to notice, a formal hearing was conducted in this case on September 11, 1992, in Vero Beach, Florida, and on November 2, 1992, by telephone, before J. Stephen Menton, a duly designated Hearing Officer of the Division of Administrative Hearings.

APPEARANCES

For Petitioner: Joseph D. Mandt, Esquire

Division of Legal Services 612 Larson Building

Tallahassee, Florida 32399-0300

For Respondent: Paul Linton McClinchey, Jr., pro se

572 Orange Avenue Sebastian, Florida 32958

STATEMENT OF THE ISSUE

The issue in this case is whether Respondent, Paul Linton McClinchey, Jr., has violated various provisions of the Florida Insurance Code as alleged in an Administrative Complaint dated March 24, 1992, and, if so, what disciplinary action should be imposed against his license as an insurance agent in Florida.

PRELIMINARY STATEMENT

On March 24, 1992, the Petitioner, Department of Insurance and Treasurer (the "Department"), filed a one-count Administrative Complaint alleging that the Respondent, Paul Linton McClinchey, Jr., while employed as an insurance agent for United Insurance Company of America (hereinafter referred to as "United" or the "Company"), misappropriated funds belonging to the Company and converted the same to his own use and benefit in violation of Sections 626.561(1), 626.611(4), (7), (8), (9), (10), (13) and 626.621(2) and (6). Respondent denied the allegations contained in the Administrative Complaint and requested a formal hearing pursuant to Section 120.57(1), Florida Statutes. The case was referred to the Division of Administrative Hearings which noticed and conducted the hearing.

The case was initially assigned to Hearing Officer Michael Parrish who scheduled the case for hearing on September 11, 1992. The case was transferred to Hearing Officer J. Stephen Menton who conducted the hearing on September 11. At the hearing on September 11, Petitioner presented testimony from Larry Weikel, the district manager for Respondent's former employer, United.

Petitioner had nine exhibits identified at the September 11 hearing.

Petitioner's Exhibit 1 was a copy of Respondent's licensure file. Petitioner's Exhibit 6 was a copy of part of Respondent's agent contract with United. (The entire contract was not provided.) Both of these exhibits were accepted without objection. At the September 11, 1992 hearing, Respondent objected to the introduction of the remaining Petitioner's exhibits on the grounds that they were documents that were in the control of United which had allegedly never been provided to Respondent. 1/ Respondent claimed that he had not been given an opportunity to review these documents prior to the hearing. Respondent requested an opportunity to review the documents prior to testifying.

Petitioner completed the presentation of its case at the September 11 hearing. All of the Petitioner's exhibits were accepted into evidence. The hearsay contents of Petitioner's Exhibit 8 were noted in accordance with Section 120.58(1)(a), Florida Statutes. The hearing was adjourned in order to allow Respondent an opportunity to review the documents. The parties were advised that the hearing would be completed by telephone after Respondent had an opportunity to review the exhibits.

Petitioner's exhibits were marked and identified during the September 11 hearing, but copies of these exhibits were not available at the time of the hearing. Petitioner was directed to provide copies of its exhibits to Respondent and to mail the exhibits marked at the hearing to the Division of Administrative Hearings. As set forth in an Order Scheduling Continuation of Hearing entered in this cause on October 2, 1992, Petitioner timely filed its exhibits with the Division of Administrative Hearings and the hearing was scheduled to reconvene via telephone conference call on November 11, 1992.

During that telephone conference hearing, Respondent testified on his own behalf. Respondent did not offer any exhibits into evidence.

No transcript of the proceedings has been filed. At the conclusion of the hearing, the parties were advised of their right to submit proposed findings of fact and conclusions of law. Petitioner has timely submitted such proposals.

No post-hearing submittals have been received from Respondent. A ruling on each of Petitioner's proposed findings of fact is included in the Appendix to this Recommended Order.

FINDINGS OF FACT

Based upon the oral and documentary evidence adduced at the final hearing and the entire record in this proceeding, the following findings of fact are made:

1. Respondent is currently licensed in the State of Florida as a life and health (debit) insurance agent, as a life insurance agent, life and health insurance agent, and as a general lines-limited to industrial fire-insurance agent.

   
   

2. At all times pertinent to this proceeding, Respondent was employed by United in its Fort Pierce, Florida office. Respondent was employed by United from approximately March of 1990 through August of 1991. His responsibilities

   with the Company included sales and servicing of accounts and collecting premiums from customers for remittance to the Company. Respondent entered into a written agent's agreement with United on March 5, 1990, pursuant to which he agreed to abide by Company rules and polices.

   
   

3. United agents were instructed that all premiums collected from insureds were to be recorded in the insureds' premium receipt book. The agent was also required to record collections on the Company's field accounting route list.

   The records contained in the premium receipt books were expected to exactly balance the records which appeared on the field accounting route list. These records were expected to be reconciled each week.

   
   

4. After Respondent's employment with United ended in August of 1991, the local management staff conducted an audit of Respondent's debit route. When accounts are audited by the Company, the Company's representative compares the entries in the insureds' premium receipt books with the amounts reflected as paid on the Company's records. Once a shortage has been discovered, it is recorded on the Company's balance due accounting form. This form reflects the shortages which occurred on each individual account.

   
   

5. According to United's audit, the premium receipt books for insureds on Respondent's debit route reflected that, as of September 2, 1992, $1,372.72 in premiums were paid that were not recorded as received by the Company. The audit also indicates that Respondent had an additional unspecified "account deficiency" of $108.84. In November of 1992, the audit was amended to reflect the Company's conclusion that there was an additional $111.31 shortage. Thus, according to United, Respondent's account had a total shortage in the amount of

   $1,592.87. United applied Respondent's $895.70 cash bond and his final paycheck of $111.53 to the alleged deficiency and advised Respondent that there was a remaining balance due of $585.68.

   
   

6. Until the hearing in this case, Respondent was not provided with a copy of the audit or any documentation as to the source of the alleged shortage. He was sent a letter by United demanding he pay the deficiency. As of the date of the hearing in this case, he has failed to pay the alleged deficiency.

   
   

7. The evidence and documentation in this case established that there was a discrepancy of $1,372.72 between the amounts reflected as paid in the insured's premium receipt books and the amounts reflected as collected on the Company's books. Under the terms of his contract with United, Respondent was responsible for this discrepancy. The remaining amount of the alleged discrepancy claimed by United was not established by the evidence. No evidence or documentation was presented to establish the $108.84 reflected on the audit report as "total account deficiency." Furthermore, the $111.37 which United added to the deficiency in November (approximately three months after Respondent stopped working for the Company) was not established by competent substantial evidence. The only evidence offered in support of this $111.37 claim were non- notarized statements from purported insureds who did not testify at the hearing. The amount of the alleged deficiencies were not reflected on the statements and the auditor who took the witness statements did not testify. The premium receipt books for the accounts which were the basis for the $111.37 claim were not offered or available.

   
   

8. The evidence established that, at the time Respondent began working for United, the debit book of insurance which was turned over to him had a deficit balance in excess of $200. Thus, $200 of the shortage in Respondent's account may have existed before Respondent took responsibility for that account.

   United's representative at the hearing admitted this preexisting deficit balance, but claimed that it was "zeroed out." No explanation was given as to how this deficit was "zeroed out" and no documentation was offered to support this claim.

   
   

9. Respondent claims that the rest of the deficiency was the result of various accounting practices employed by United. More specifically, Respondent claims that approximately $767 of the alleged deficiency was attributable to checks that were returned and/or not honored.

   
   

10. When an insured pays his premium by check, the payment is reflected as received as of the date the check is turned over to the Company. If the check subsequently bounces or cannot be collected, the amount of the check is substracted from the agent's account. However, no specific accounts were cited by Respondent and no corraborative evidence was offered in support of his contention that a large portion of the deficiency was a result of returned checks. In any event, under his agent's contract, Respondent would be responsible for any such returned checks.

    
    

11. A policy is considered to be in arrears when the premiums have not been paid up-to-date. An agent can request the Company to send out an arrears notice. Generally, the Company does not cancel a policy until 60 days have elapsed without payment of the premium.

    
    

12. If a policy lapses within the first 12 months, all of the commissions paid to the agent are charged back to his account. Respondent contends that part of the alleged deficiency is attributable to charge backs for policies that lapsed after he left. However, commission charge backs are not reflected in the audit. Therefore, Respondent's contention that he has been charged for lapsed policies was not supported by the evidence.

    
    

13. United puts a percentage of each new agent's commissions in a reserve account to cover the agent's obligations to the Company if he leaves. The exact workings of this reserve account were not clearly explained at the hearing. It is clear, however, that in view of the above accounting procedures, very few agents leave the Company with a positive reserve.

    
    

14. Because the Company's records reflected that premiums had not been paid on several polices serviced by Respondent, arrears letters were sent to the policy holders. Several of those policy holders called the Company claiming that they had paid their premiums.

    
    

15. Respondent contends that he was directed by his supervisors to record collected premiums in a manner that would enable his weekly accounts to balance out even if the premiums were not recorded in the appropriate insured's account and/or prepaid premiums were diverted to keep other policies from going into arrears. Failure to record collected premiums in the appropriate insured's account was contrary to the written policies of United. Respondent should have known that any such recordation was improper and could ultimately cause an insured's policy to go into arrears even though the payment had been made.

    
    

16. Respondent also claims that a portion of the deficiency was attributable to applications for polices that he turned in without the initial premium. Company policy generally required premiums to accompany an application. Respondent claims that his supervisor directed him to turn in some applications even without the initial premiums. He claims he has subsequently been charged for the deficiency when no premiums were ever paid on the policies.

    It is not clear from the evidence presented how much, if any, of the deficiency was attributable to applications submitted in this matter.

    
    

17. In sum, the evidence established that, at the time he left the employ of United, there was a discrepancy of at least $1,261.35 between the Company's records and the insured's premium receipt books on accounts that Respondent was responsible for. While approximately $200 of this deficiency may have been preexisting, the evidence sufficiently established that Respondent was responsible for at least $1,061.35 of the deficiency. Respondent's reserve account and last pay check have only covered $1,007.23 of this shortage. Thus, Respondent still owes United at least $54.12.

    
    

    CONCLUSIONS OF LAW

    
    

18. The Division of Administrative Hearings has jurisdiction of the subject matter and the parties to this proceeding pursuant to Section 120.57(1), Florida Statutes.

    
    

19. Insurance is a business greatly affected by the public trust, and the holder of an agent's license stands in a fiduciary relationship to both the client and the insurance company." Natelson v. Department of Insurance, 454 So.2d 31,32 (Fla. 1st DCA 1984). Petitioner is the state agency empowered to enforce the provisions of the Florida Insurance Code.

    
    

20. Petitioner has the burden to prove the violations alleged in the Administrative Complaint filed against Respondent by clear and convincing evidence. Ferris v. Turlington, 510 So.2d 292 (Fla. 1987).

    
    

21. Although the Administrative Complaint filed against the Respondent contains only one count, it alleges violations of several different sections of the Florida Insurance Code.

    
    

22. The Administrative Complaint alleges that Respondent violated Sections 626.561(1); 626.611(4); 626.611(7); 626.611(8); 626.611(9); 626.611(10); 626.621(2); and 626.621(6), Florida Statutes. These provisions provide as follows:

    
    

    626.561(1) All premiums, return premiums, or other funds belonging to insurers or others received by an agent, solicitor, or adjuster in transactions under his license shall be trust funds so received by the licensee in a fiduciary capacity; and the licensee in the applicable regular course of business shall account for and pay the same to the insurer, insured, or other person entitled thereto.

    * * *

    626.611 The department shall deny, suspend, [or] revoke . . . the license or appointment of any agent . . . if it finds that as to the

    . . . license . . . any one or more of the folloing applicable grounds exist:

    * * *

    626.611(4) If the license or permit is willfully used, or to be used, to circumvent any of the requirements or prohibitions of this code.

    1. Demonstrated lack of fitness or trustworthiness to engage in the business of insurance.

    2. Demonstrated lack of reasonably adequate knowledge and technical competence to engage in the transactions authorized by the license or permit.

    3. Fraudulent or dishonest practices in the conduct of business under the license or permit.

    4. Misappropriation, conversion, or

    unlaw ful withholding of moneys belonging to insurers or insureds or beneficiaries or to others and received in conduct of business under the license.

    (13) Willful failure to comply with, or willful violation of, any proper order or rule of the department or willful violation of any provision of this code.

    * * *

    626.621 The department may, in its discretion, deny, suspend, [or] revoke . . . the license or appointment of any agent . . . if it finds that as to the . . . license . . . any one or more of the following applicable grounds exist under circumstances for which such denial, suspension, [or] revocation is not mandatory under Section 626.611.

    * * *

    626.621(2) Violation of any provision of this code or of any other law applicable to the business of insurance in the course of dealing under the license or permit.

    (6) In the conduct of business under the license or permit, engaging in unfair methods of competition or in unfair or deceptive acts or practices, as prohibited under part X of this chapter, or having otherwise shown himself to be a source of injury or loss to the public or detrimental to the public interest.

    * * *

    
    

23. Petitioner is required to suspend or revoke the license of any agent who is found to have violated any of the provisions of Section 626.611, Florida Statutes. Petitioner has discretion to impose disciplinary action against any agent who is found to violate any of the provisions of Section 626.621, Florida Statutes.

    
    

24. Pursuant to Section 626.561(1), Florida Statutes, all premiums, return premiums, or other funds belonging to insurers or others received by the agent in transactions under his license are trust funds received by the licensee in a fiduciary capacity. The moneys that Respondent obtained by collecting weekly and monthly premiums from customers on his debit route were fiduciary funds, which belonged to United. Respondent's failure to properly account for these premium funds or his misapplying of these premium funds to "zero his account" is a violation of Sections 626.561(1) and 626.621(2), Florida Statutes. In

    addition, it is concluded that the Department has shown by clear and convincing evidence that Respondent is a source of injury and loss to the public and detrimental to the public interest in violation of Section 626.621(6), Florida Statutes. The more difficult question is whether Respondent's conduct rises to the level of culpability necessary to constitute a violation of Sections 626.611(4), 626.611(7), 626.611(8), 626.611(9), 626.611(10), and 626.611(13),

    Florida Statutes. From the evidence presented, it is not clear whether the deficiency was the result of deliberate conversion by Respondent or the unfortunate consequence of servicing policies for which premiums checks were returned and/or for delivering applications for policies without the appropriate premium. The United agent's contract was very one-sided in favor of the Company. United's representative admitted that few agents leave the company with a positive reserve account. Considering all the evidence in this case, it can not be concluded that Respondent is guilty of the willful, fraudulent conduct necessary to establish a violation of Section 626.611, Florida Statutes.

    
    

25. Section 626.681(1), Florida Statutes, provides:

    
    

    . . . If the Department finds that one or more grounds exist for the suspension, revocation or refusal to renew or continue any license or appointment issued under this chapter, the Department may in its discretion, in lieu of such suspension, revocation, or refusal, and except on a second offense or when such a suspension revocation or refusal is mandatory, impose upon the licensee or appointee an administrative penalty in an amount up to $500 or, if the Department has found willful misconduct or willful violation on the part of the licensee or appointee, up to $2,500

    . . . . [emphasis added]

    
    

26. Section 626.691(1), Florida Statutes, provides as follows:

    
    

    If the Department finds that one or more grounds exist for the suspension, revocation or refusal to renew or continue any license or appointment issued under this part, the Department may, in its discretion, except when an administrative fine is not permissible under s626.681 or when such suspension,

    revocation or refusal is manda tory, in lieu of such suspension, revocation, or refusal, or in connection with any administrative monetary penalty imposed under s626.681, places the offending licensee or appointee on probation for a period, not to exceed two years, as specified by the Department in its order.

    (2) As a condition to such probation or in connection therewith, the Department may specify in its order reasonable terms and conditions to be fulfilled by the probationer during the probation period . . .

27. The proper interpretation of this sometimes confusing regulatory scheme was elucidated in Dyer v. Department of Insurance and Treasurer, 585 So.2d 1009, (Fla. 1st DCA 1991). As noted by the court in that case,

    
    

    The statutory scheme is abundantly clear that when a licensed insurance agent has violated Section 626.611, such violation requires mandatory suspension or revocation, precluding the application of Section 626.621 and use of the alternative sanctions as provided in Section 626.681 and 626.691. In this circumstance, the Department is obligated to impose either suspension or revocation pursuant to Section 626.611, with the severity of the penalty to be based upon the number and severity of all offenses of which the licensee has been found guilty at that time. 585 So.2d at 1015.

    
    

28. In this case, Respondent has been found guilty of misconduct under Section 626.621. There is no finding of guilt under Section 626.611, so suspension is permissive not mandatory. The Department is authorized to impose an administrative fine or probation in lieu thereof. 2/

RECOMMENDATION

Based upon the foregoing Findings of Fact and Conclusions of Law, it is RECOMMENDED that the Department of Insurance issue a Final Order finding

Respondent guilty of violating Section 626.621(6) and that Respondent's licenses

be suspended for a period of three months, or, in lieu of a suspension, Respondent should be required to pay to the Department a fine of $200 and be placed on probation for a period of two years subject to such terms and restrictions as the Department may apply.

DONE AND ENTERED in Tallahassee, Leon County, Florida, this 8th day of July 1993.

J. STEPHEN MENTON Hearing Officer

Division of Administrative Hearings The DeSoto Building

1230 Apalachee Parkway

Tallahassee, Florida 32399-1550

(904) 488-9675

Filed with the Clerk of the Division of Administrative Hearings this 8th day of July 1993.

ENDNOTE

1/ Petitioner's Exhibits 2 through 5 were copies of audit reports prepared by United. Petitioner's Exhibit 7 was a copy of a United payroll check.

Petitioner's Exhibit 8 was a composite of affidavits obtained from United insureds. Petitioner's Exhibit 9 was a composite of certain letters sent by United to Respondent.

2/ This penalty is only appropriate if there is no finding of guilt under Section 626.611.

APPENDIX TO RECOMMENDED ORDER, CASE NO. 92-2915

Only the Petitioner has submitted a Proposed Recommended Order. The following constitutes my rulings on the proposed findings of fact submitted by the Petitioner.

The Petitioner's Proposed Findings of Fact

1. Adopted in substance Finding of Fact 1.

2. Adopted in substance Finding of Fact 2.

3. Adopted in substance Finding of Fact 2.

4. Adopted in substance Finding of Fact 4.

5. Subordinate to Findings of Fact 5 and 7.

6. Subordinate to Findings of Fact 5 and 7.

7. Subordinate to Findings of Fact 5, 7 and 17.

8. Subordinate to Findings of Fact 15.

9. Subordinate to Findings of Fact 15.

COPIES FURNISHED:

Joseph D. Mandt, Esquire Division of Legal Services

412 Larson Building Tallahassee, Florida 32399-0300

Paul Linton McClinchey, Jr.

572 Orange Avenue Sebastian, Florida 32958

Thomas Gallagher

State Treasurer and Insurance Commissioner

Department of Insurance The Capitol, Plaza Level

Tallahassee, Florida 32399-0300

Bill O'Neil, General Counsel Department of Insurance

The Capitol, PL-11

Tallahassee, Florida 32399-0300

NOTICE OF RIGHT TO SUBMIT EXCEPTIONS

All parties have the right to submit written exceptions to this recommended order. All agencies allow each party at least 10 days in which to submit written exceptions. Some agencies allow a larger period within which to submit written exceptions. You should contact the agency that will issue the final order in this case concerning agency rules on the deadline for filing exceptions to this recommended order. Any exceptions to this recommended order should be filed with the agency that will issue the final order in this case.

Docket for Case No: 92-002915

Orders for Case No: 92-002915